TradingIntermediate#Market Microstructure#Liquidity
Order Book Depth
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Definition
The volume of buy and sell orders at each price level in an exchange's order book, indicating market liquidity and potential price impact of large trades.
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Concept Diagram
Key Takeaways
1
Order book depth shows the volume of resting buy and sell orders at every price level.
2
Thin books cause high slippage — large trades move the price significantly.
3
Bid clusters below price = support; ask clusters above price = resistance.
4
Depth measures future trading potential, while volume measures past activity.
Practical Example
BTC is at $100,000. The order book shows 50 BTC in bids between $99,000-$100,000 but only 5 BTC in asks between $100,000-$101,000. This asymmetric depth suggests sellers are thin — a moderate buy order could push price up quickly, but a sell order would find plenty of buyers.
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Related Terms
Blockchain
Liquidity PoolA collection of funds locked in a smart contract used to facilitate trading by providing liquidity on decentralized exchanges.
Trading
SlippageThe difference between the expected price of a trade and the actual price at which the trade is executed due to low liquidity.
Trading
Bid-Ask SpreadThe difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask), representing the hidden cost of trading.
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